P2Ps Score Landmark Legal Victory

Peer-to-peer networks are not responsible for the copyright violations of
their users, the 9th Circuit Court of Appeals in San Francisco ruled
Thursday. The decision upholds a lower court ruling based on the technology
neutrality principles established in the 1984 Sony Betamax case.

In a seminal victory for the popular file-sharing networks, the court
acknowledged that copyright violations do occur on the P2P networks,
but the owners and developers of the enabling software cannot be held liable
for the infringements.

"We live in a quicksilver technological environment with courts ill-suited
to fix the flow of Internet innovation," Judge Sidney R. Thomas wrote in the
unanimous opinion of the three-judge panel. "The introduction of new
technology is always disruptive to old markets, and particularly to those
copyright owners whose works are sold through well-established distribution
mechanisms."

In October 2001, Hollywood studios, record companies and music publishers
sued Kazaa, Grokster and StreamCast Networks (owners of Morpheus) for
contributory and vicarious copyright infringement. District Court Judge
Stephen Wilson ruled in April of last year that Grokster and Morpheus could not
control how people use their software, which could also have legitimate
applications.

The court cited the landmark Sony Betamax case, where the Hollywood studios
tried to outlaw VCRs before running into a Supreme Court ruling saying the
use of new technology to infringe copyrights did not justify an outright ban
on that technology.

The Hollywood studios, record companies and music publishers appealed the
decision in August of last year and the case was argued in February.

"History has shown that time and market forces often provide equilibrium in
balancing interests, whether the new technology be a player piano, a copier,
a tape recorder, a video recorder, a personal computer, a karaoke machine or
an MP3 player," Wilson wrote. "Thus it is prudent for courts to exercise
caution before restructuring liability theories for the purpose of
addressing specific market abuses, despite their apparent present
magnitude."

A significant key to the decision was the court ruling distinguishing the
differences between the P2P networks being sued and the original Napster,
which was shut down by the courts in 2000. In Napster's case, an index of
material available for file swapping was maintained on a central server.
Neither Grokster nor Morpheus use central servers.

Adam Eisgrau, the executive director of P2P United, a trade group whose
members include Grokster and Morpheus, called the decision a "complete and
utter rejection ... of the entertainment industry's attempts to warp
long-standing, pro-innovation copyright law into a weapon against
peer-to-peer technology."

He hailed the P2P win as a "profound and major victory for the American
consumer and our economy. Critically, the court cut through and rejected
Hollywood's and Big Music's propaganda about peer-to-peer software, and the
P2P United member companies sued in this case to find the truth."

Michael Weiss, head of StreamCast Networks, issued a statement saying, "As
CEO, I am proud that Morpheus has become the first American P2P company to
successfully win its fight for the right to continue to develop innovative
new distributed communications technologies. In today's ruling, the 9th
Circuit Court has affirmed our strong conviction from day one that
developing Morpheus was not just legally our right, but morally was the
right thing to do."

Neither the Motion Picture Association of America nor the Recording Industry
Association of America were immediately available for comment.

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